The Nobel Prize in Economics
A report on how the winner of the Nobel Prize in economics is determined, with thoughts from past Nobel Prize winners.

In a world that loves glitz, celebrates celebrity and praises pomp
and circumstance, once a year an economist (sometimes a lucky two
or three) gets the equivalent of a visit from Ed McMahon and the
Publisher's Clearinghouse, complete with a $1 million check and
the fishbowl glare of paparazzi.

The 32nd annual awarding of the Nobel Prize in economics occurs,
as it does every year, in October. Far from luck or coincidence,
however, the winner receives the prize for contributing the most
outstanding ideas to the field of economics. Winners are lavished
with attention and ceremonies, and the major media focus their larger-than-life
lenses on a professional field it otherwise often ignores. A winner
can achieve cultlike status within the profession, and find himself
(sorry, no women in this club yet) the expert on all things, economic
or not.

But just what is the Nobel Prize in economics? From where did
it come, and what influence does it have in the economics community?

Few realize, especially outside of economists, that the prize
in economics is not an "official" Nobel. The five original
Nobelsphysics, chemistry, peace, literature, and medicine or physiologywere
established in Alfred Nobel's will in 1895 to honor the most important
discoveries in these respective areas. The first awards were made in
1901.

The award for economics came almost 70 years laterbootstrapped
to the Nobel in 1968 as a bit of a marketing ploy to celebrate the Bank
of Sweden's 300th anniversary. The Bank established a foundation to
award the annual prize money, and the new award became known officially
as "The Sveriges Riksbank (Bank of Sweden) Prize in Economic Sciences
in Memory of Alfred Nobel."

Awarded by the Royal Swedish Academy of Science (which also awards
the prizes for chemistry and physics), the selection process for
economics laureates is similar to that of the original Nobels, and
the financial award is also $1 million. In 30 years, 43 economists
have received the award, which has been shared 11 different times.

Almost two of three laureates have been U.S. citizens (although
Arthur Lewis had British citizenship as well, and several others
were born elsewhere and eventually moved to the United States).
This preference for American economists, according to several sources,
stems from high-powered research at public and private institutions
in the United States, which fosters scholarly competition and innovative
thinking, particularly among young scholars looking to make their
mark.

While based on research accomplishments, final selections for
the Prize in Economics are inevitably subjective and easy targets for
second-guessing. David Warsh, economics columnist for the Boston
Globe for 20 years, said he was impressed by the Swedes' stewardship
of the award, and particularly its emphasis on consensus. "What
you want is consistency and clarity of criteria," he said.

David Romer, professor of economics at the University of California,
Berkeley, acknowledged some grumbling about the apparent pro-Western
leanings, mostly from economists at the ideological margins like neo-Marxists
and neo-Keynesians. Romer said he thought the selection committee did
a good job of "taking a stand," given the breadth of viewpoints
among economists. "You have to decide what's good economics and
what's not good economics," said Romer, adding the Academy "has
made a judgment that most of the important work in economics has been
done by mainstream academic economists."

Had the prize started in the first half of this century, the English
would have dominated the award, according to Edward Prescott, Regents
professor at the University of Minnesota and senior consultant with
the Federal Reserve Bank of Minneapolis. The "best thinking"
later moved to the United States, as economists from Harvard, MIT, Yale
and Princeton took home awards during the early years, and continued
its travel westward, Prescott said. Economists from the University of
Chicago have grabbed five prizes this decade, eight overall, and an
additional 10 laureates have spent time as students, researchers or
professors at Chicago since the award's inception.1

The United States will likely continue to dominate the prize awards
in the near future, Prescott said, because "that's where the action
is, and it's where you get paid a lot of money."

The Economics Prize Selection Committee sends invitations
to economists throughout the world and to all living economic
laureates, asking for nominations for the coming year.

Nominations received by the committee are then investigated
with the help of specially appointed experts, who research
and analyze the contributions of the top 20 or 30 candidates.

These reports are then debated by the Prize Committee and by
spring they send a recommendation to the Social Sciences Class,
which endorses the recommendation by late summer or early fall
and sends it to the full Academy.

The winner is selected by a simple majority vote and
announced immediately after the vote in mid-October each
year.

Selection process known for its secrecy

If the award is anything, it is thorough in its selection process.
Much of the legwork is handled by the Economics Prize Selection
Committee, which consists of five eminent scholars. Every year in
October, the committee sends invitations to economists throughout
the world and to all living economics laureates, asking for nominations
for the coming year.

The nominations received by the committeeusually around
250, covering roughly 100 individualsare then investigated
with the help of specially appointed experts, who research and analyze
the contributions of the top 20 or 30 candidates. These reports
are then debated by the Prize Committee, and by spring they send
a recommendation to the Social Sciences Class, which endorses the
recommendation by late summer or early fall and sends it to the
full Academy. The winner is selected by a simple majority vote and
announced immediately after the vote in mid-October each year.

One of the enamoring idiosyncrasies of the Economics Prizeparticularly
in light of the media's penchant for leak-filled, overhyped pseudo-eventsis
the degree of secrecy that surrounds the prize's selection and announcement.

Laureate Douglass North (1993 winner) said he was contacted by
a German news magazine several days in advance of the announcement,
claiming it had heard North was receiving the prize. North said he later
inquired about the leak and was told by the Academy that "there
was absolutely no way there could be a leak," he said.

Author Sylvia Nasar cobbled together one of the most in-depth
looks at the selection process for the Prize in Economics in her
recent book, A Beautiful Mind, a biography of 1994
laureate, John Nash, who was struck by mental disease after establishing
himself as a mathematics genius in the 1950s.

But it wasn't easy, according to Nasar, who called the chapter
on Nash's selection one of the book's biggest challenges.

"There is so, so little material that's out there,"
she said. "Just about everything connected to the prize is completely
secret." Only a few token items are in the public domain, things
like membership and process of the selection committee. Nobel Foundation
statutes require that archives on committee and Academy decisions are
closed to the public for 50 years.

Nash's mental health history made his selection one of the Academy's
most controversial laureate votes, yet the heated internal debate
almost went undetected. But Nasar's journalistic instincts were
piqued when a business writer from a Swedish newspaper reported
an hour-and-a-half delay in announcing the 1994 winner. A seemingly
trivial detail, one which was largely overlooked by observers both
far and near. But it was truly unusual for the Academya crack
in its otherwise seamless public relations armor.

Nasar flew to Sweden for a week to take a closer look at the
Academy and the prize selection process, "realizing that this
would be a good story if [I] could get it." Nasar's 16-page chapter
on Nash's selection was the result of countless calls to members of
the selection committee and the Academy, several of whom requested anonymity
in the book.

But the "loose lips sink ships" aura that surrounds the
selection has its upside as well. Laureate Robert Lucas (1995 winner)
said that the secrecy, along with "the PR rush" that follows
the announcement, adds a lot of excitement to the award. "Having
everything leaked in advance, the way American Economic Association
honors are, would take a lot of the fun out of it," Lucas said.

Once chosen, the recipient is thrown into a parallel world-an economist's
Disney Worldcomplete with all the pomp and circumstance befitting
royalty. "It's a fabulous occasion," North said. "It's
five days of living like a king." Now six years after receiving
the Prize in Economics, North said his life has never been more chaotic,
as he still receives 10 to 15 speaking invitations a week from around
the world.

Lucas agreed that receiving the award comes with its own magical mystery
tour. "The prize took over my life entirely for about six months."

Laureate Herbert Simon (1978 winner) said the prize did not dramatically
impact his life, but "substantially increas[ed] the frequency
of queries from reporters and writers about world events" who
thought he became an expert on all things by virtue of his Nobel selection.

The beauty (pageant) of economics

Most economists profess to have no concern over whether they win the
Economics Prize. Simon said economists are more worried about leaving
their mark on the world than filling the trophy case. "Of course
scientists are competitive, but gold medals aren't the prizes they are
competing for," Simon said. "At best, the prizes provide
some mild reassurance that one is on track ... and a place in history
is, for most scientists, the more important one."

Mere awards could hardly enhance the legendary status of John Keynes
or Adam Smith, Simon pointed out. "The Nobel does not certify
scientists to their scientific communities. It certifies them to the
wider public."

But it is not uncommon for that detachment to erode once candidates
make the selection committee's short-list. After the selection committee
has narrowed the candidate pool, Prescott said, the award becomes a
"complicated, political process" among candidates, some
of whom become shameless self-promoters. "The committee has done
a decent job [of selecting winners]. It's tough given the pressures
that are put on it," said Prescott.

"For a lot of people, their whole life is geared around getting
the award," North said, adding that he was "repulsed"
by such actions.

But economists are human too. "It's no different than the Academy
Awards, I suspect," Warsh pointed out.

To accompany the normal armchair conjecture about the annual winner,
in 1982 Romer started an informal pool to guess the recipient of the
economics award for "the same kind of reason people like doing
the NCAA (basketball) pool."

Romer estimated that a total of 40 to 50 votes were cast the first
year. The pool has remained small by virtue of its word-of-mouth
marketing. While the eventual prize winner might not always receive
the most votes, Romer said, he has almost always shown up in the
voting. Most winnerssuch as Gary Becker and Lucasusually
make good showings in the pool for several years before being honored
by the Academy.

A year ago Romer handed pool-running duties over to Dan Altman,
a fourth-year economics graduate student at Harvard. Last September,
a total of 79 votes were cast, with Amartya Sen receiving the most
votes (15) for the second year in a row. Sen was also was the top
vote-getter in the annual poll conducted by About.com, a topic-based
Web resource.

Coincidence or not, Sen won the 1998 Economics Prize, which means
a new "economists' choice" will be crowned for both polls
this year. If tradition provides precedent in Romer's pool, this year's
winner might be Zvi Griliches, Dale Jorgenson or George Akerlof, who
were runners-up last year. Those interested in the About.com poll can
cast a vote for this year's winner at http://economics.about.com/.

A Nobel identity crisis

The Prize in Economics also happens to be experiencing some of the
same growing pains as the profession itself. Over the years, there
has been less-than-polite discussion regarding economics' place
among other Nobels in the natural sciences and the caliber of annual
recipients for the Prize in Economics.

The award suffers under the impression of some that it is a second-class
citizen among the Nobels. Part of the reason is the Royal Academy's
involvement with the Nobels for physics and chemistrythe classic
"hard" or natural sciences that hold such stature among
some researchers. Meanwhile, economics is classified with other "soft"
social sciences at the Academy, which have struggled within the larger
scientific community to attain the reputation of their "harder"
peers (also a matter of considerable debate among economists and scientists
in other fields).

In 1969, the first year of the Economics Prize, Simon said he
was a member of the President's Science Advisory Committee (PSAC),
which was chaired by Lee DuBridge, longtime Caltech physics professor
and science adviser to President Nixon. Also on that committee was
Murray Gell-Mann, who won the Nobel Prize in physics that year for
his work in elementary particles.

Upon returning from the award ceremonies, Simon said PSAC members
were questioning Gell-Mann about the affair and the new Prize in Economics.
"Lee DuBridge asked Murray, with real anguish in his voice, 'Did
they [the economists] actually sit on the platform with the others?'"

Compounding the identity crisis within economics is the fact that
most economists agree that the real giants of the field have already
been honored. According to some, this has left the Academy with few
obvious choices in the last decade and a half. One economist reportedly
lamented in the early 1980s that "all the mighty firs have fallen.
Now there are only bushes left."2

"There is some question whether [the Academy] ought to be giving
[the Prize] out every year," said North, agreeing that after the
first 15 years the Academy had exhausted the backlog of candidates whose
work clearly qualified them for the honor at some point. "I don't
think there are any big, outstanding individuals left."

Warsh disagreed with that notion. "Some people think that, but
I don't," he said. "Bob Lucas is not a 'less potent crowd.'"
Warsh argued there are at most four or five legendary figures within
any science in a given centurylike Paul Samuelson and Kenneth
Arrow in economics. "It's pretty absurd to think you could have
an Einstein in physics every year," he said. "There is plenty
of interesting work to award one of these every year."

Romer agreed, "It's easy to come up with several dozen people
who could be very plausible winners." But he questioned the Academy's
apparent preference for older economists, pointing out that most prizes
have been awarded for research done some 30 years earlier. Adding fuel
to Romer's point is that the average age of economics laureates is 67,
compared with 52 years old for winners in physics.

Prescott argued this is partially out of necessity because economics
has very established views that "fight like hell" against
new ideas, so it takes time for new theories and models to become properly
tested and accepted by the economics community. Assar Lindbeck, head
of the Economics Prize Committee for years, wrote in a recent paper
that "economic behavior, like human behavior in general, is complex
... [and] varies over time and place." As such, it often takes
longer "to find out if a new [economics] contribution is solid
or if it is just a fad."3

"That's a fine argument for waiting 10 or 20 years" to
reward a particular scientist for his or her contributions, Romer said.
But there are very few examples of awards given even within this shorter
timeframe. "It's appropriate that [the Economics Prize] not be
like physics where it's hot off the presses, but I think they have carried
it to excess," said Romer. "Maybe they want wrinkled fir
trees."

It has also been suggested-though not widely among economiststhat
practitioners like Fed Chairman Alan Greenspan be considered for the
award. North argued that the focus must remain on "new and original
contributions," adding, "Greenspan's never done anything
like that." While those involved in public policy have made many
significant contributions, Prescott said someone like Greenspan cannot
be a serious candidate for the award because he is "using the
tool" developed through the research of others.

Lucas pointed out that the Nobel awards are given for intellectual
achievement in a certain field, and measured by the quality and influence
of one's research. "Obviously this limits the range of people
who might win the prize," Lucas said, "Most peopleeven
people of great eminence generallydon't have any intellectual
achievements."

That fact alone is no reason to lower the standards for the Prize
in Economics. "It seems perverse to criticize such a prize because
it only goes to intellectuals," Lucas said. "Is it a criticism
of the Heisman Trophy that it only goes to football players?"

Notes

3 Assar Lindbeck,
"The Sveriges Riksbank (Bank of Sweden) Prize in Economic Sciences
in Memory of Alfred Nobel, 1969-1998," Institute for International
Economic Studies, University of Stockholm, June 1999. Available on the Nobel
Foundation Website.